SRC-HRD S.B. 1416 75(R) BILL ANALYSIS Senate Research Center S.B. 1416 By: Ellis Finance 4-23-97 As Filed DIGEST Currently, agencies of the State of Texas may not select as a depository institution any financial institution which has a rating below "outstanding record in meeting community credit needs" or "satisfactory record of meeting community needs" under 12 U.S.C. Section 2906. Essentially, this prohibits the state from utilizing a depository institution that has a poor record of performance under the Community Reinvestment Act. S.B. 1416 would extend this prohibition to include other political subdivisions within the state, including a county, municipality, special purpose district, and an authority. PURPOSE As proposed, S.B. 1416 prohibits political subdivisions of the state from selecting as a depository a regulated financial institution that has been assigned a rating below "outstanding record of meeting community credit needs" or "satisfactory record of meeting community record needs" under 12 U.S.C. Section 2906. RULEMAKING AUTHORITY This bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Title 10F, Government Code, by adding Chapter 2258, as follows: SUBCHAPTER 2258. DEPOSITORY INSTITUTIONS ELIGIBLE FOR DEPOSIT OF PUBLIC FUNDS Sec. 2258.001. DEFINITIONS. Defines "political subdivision," "public agency," "regulated financial institution," and "state agency." Sec. 2258.002. SCOPE OF CHAPTER. Provides that this chapter applies to funds deposited in a regulated financial institution by a public agency, including funds deposited under Chapter 116, Local Government Code, Chapter 404, or any other law. Sec. 2258.003. DUTY OF FINANCIAL INSTITUTION. Requires a regulated financial institution that accepts a deposit of public funds to report to the public agency that made the deposit the rating assigned to the financial institution under 12 U.S.C. Section 2906. Requires a regulated financial institution to make a report required by this section annually, not later than August 1 of each year, and not later than the 30th day after the date the financial institution is notified that the assigned rating has been changed. Sec. 2258.004. PROHIBITED DEPOSITS. Prohibits a public agency from selecting as a depository a regulated financial institution that has been assigned a rating below "outstanding record of meeting community credit needs" or "satisfactory record of meeting community credit needs" under 12 U.S.C. Section 2906. Requires a public agency, upon receipt of notice that the rating of a financial institution is changed to a rating below that required by this section, to take immediate action to transfer all public funds on deposit with the institution to a qualified financial institution. Sec. 2258.005. WITHDRAWAL WITHOUT PENALTY. Requires the depository contract between a regulated financial institution and a public agency to authorize the withdrawal without penalty of the public funds on deposit in the event that the rating of the institution is changed to a rating below that required by Section 2258.004. SECTION 2. (a) Requires, except as provided by Subsection (b) of this section, the state and each state agency, political subdivision, and publicly owned utility to ensure that funds deposited by the entity are deposited in compliance with Chapter 2258, Government Code, as added by this Act, not later than January 1, 1998. (b) Authorizes a regulated financial institution that is acting as a depository of funds subject to Chapter 2258, Government Code, as added by this Act, on the effective date of this Act and that does not have an assigned rating under 12 U.S.C. Section 2906 that satisfies the requirement of Section 2258.004, Government Code, as added by this Act, to continue to hold the funds only for the period necessary to avoid the imposition of a penalty on the depositing entity. (c) Makes application of this Act prospective. SECTION 3. Emergency clause. Effective date: upon passage.